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Deutsche Bank-FERC Reach Settlement

Zacks Equity Research

Frankfurt-based Deutsche Bank AG (DB) has agreed to pay a penalty to the U.S. Federal Energy Regulatory Commission (:FERC) over alleged manipulations in the Ca. electricity markets in 2010. The settlement also requires this bank to execute better compliance measures.

Deutsche Bank will pay a civil penalty of $1.5 million to the FERC within 10 days. Further, the bank has agreed to surrender $172,645 worth of profit along with interest for influencing the Ca. power markets between Jan and Mar 2010.

As per FERC, Deutsche Bank Energy Trading LLC – a wing of Deutsche Bank – had violated the anti-manipulation rule by engaging in a scheme, in which the energy arm  entered into physical transactions to boost its own financial position.

According to the Office of Enforcement of the FERC, these physical transactions sullied the proper functioning of the California Independent System Operator (California ISO) markets. Further, FERC accused the bank of infringing the regulations requiring companies with market-based rate authority to provide correct information.

Though the bank has agreed to pay the penalty, it is yet to admit or deny these accusations. In Nov 2012, Deutsche Bank was willing to challenge these accusations in the court. However, it is likely that the bank discarded the idea as the cost of litigation exceeded the settlement amount.

The abovementioned settlement is the latest win for the regulator that has come down hard on unwarranted trading activities by the companies. The company has also proposed a $470 million penalty on Barclays PLC (BCS) and prohibition of six months for JPMorgan Chase & Co’s (JPM) energy arm from some of the power markets on the grounds of similar practices.

It is a prudent move by Deutsche Bank to settle the charges instead of opting for a litigation, which may have added to its already high expenditures.

Currently, Deutsche Bank retains a Zacks Rank #4 (Sell). However, another foreign bank stock that is performing well and can be recommended for investment purpose is Banco Macro S.A. (BMA), which carries a Zacks Rank #1 (Strong Buy).


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